Cash is king for principals, particularly in Q1: poll

Cash is king for principals, particularly in Q1: poll

12 September 2012 by Simon Parker 1 comments

Cash may be king but come the first quarter of each year, money can be harder to find for many real estate professionals, according to the results of a recent survey.

In the latest Real Estate Business straw poll, 38.7 per cent of the almost 200 respondents said the January to March period was when cash flow was tightest for them. This was closely followed by the July to September quarter, which was the toughest time for 36.6 per cent of respondents.

According to Stan Crook, director at Queensland Residential Property Services, cash flow is particularly tight for principals two times each year, namely near Christmas and again at Easter.

“I know the survey shows differently but I believe these are the crucial months of poor income. The following month [after each period] has an increase,” he told Real Estate Business.

Many of the problems a principal may face, however, often stem from a lack of business acumen.

“Many principals who own a small agency are primarily sales orientated,” Mr Crook said. “Most are highly successful in that role and, generally speaking, are the main source of writing deals. Unfortunately they don’t keep an eye on the business.”

He said maintaining cash flow is a common problem in the industry, and he points to property management as the only way to ensure regular income.

“Having a rent roll portfolio is the only known source of regular earnings that will come into the business each and every month,” he added. “Adding any let and sundry fees earned during that period should allow a principal to know with some certainty what the income is likely to be at the end of the month.”

Yet the message appears to be getting through to more principals, with the Macquarie Relationship Banking 2012 Residential Real Estate Benchmarking Report finding that property management revenue now accounted for a greater share of an agency’s fixed expenses.

“As agencies react to the tougher sales environment, we have seen an increased focus on expenses,” the report said. “In considering fixed costs covered by recurring property management commissions, the industry average in 2009 was 48 per cent and has risen to 55 per cent in 2012.

“This is a positive result as agencies focus on reducing costs, growth and consolidation.”

Principals should keep close tabs on their agency's financial performance, Mr Crook continued.

“Small to medium business the principals should at the very least check the cash flow on a weekly basis,” he said. “Most wait till the end of the month and ‘hope’ there is enough cash to pay the month’s accounts.”

John Percudani, director at Perth-based Realmark, agreed that principals often struggle with managing cash flow purely because they’re so focused on the sales-side of the business.

He says most principals think in terms of monthly financial cycles, as opposed to having a broader “helicopter view” that’s centred on quarterly, yearly and multi-year targets.

“It’s critical principals actively monitor, report and analyse their financials,” he told Real Estate Business. “You’ve got to know what are the [financial] outcomes and the trends. Year on year on year, [you’ve got to know your business’] patterns.”

Mr Percudani added that it’s important to challenge often long-held perceptions about when sales are ‘meant to happen’.

“We noticed that in our commercial division [in relation to quieter periods], but it was because we were telling people that this was a good time or bad time to sell,” he says. “I don’t go along with the adage that spring is a great time to sell. Serious buyers are always in the marketplace.”

“Every day is a good day to list and sell.”

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